The COVID-19-induced era of rock-bottom interest rates is over — just as the U.S. finally seems to be turning the corner on the pandemic.
Yet while falling COVID cases and solid consumer demand are helping clear the way for higher rates, the Federal Reserve is taking aim at the pandemic’s stubborn economic legacy: soaring inflation.
Moving to curtail a historic surge in consumer prices, the Fed raised its key short-term interest rate Wednesday – by a quarter-percentage point — for the first time in more than three years and forecast six more hikes this year. That’s up from the three total quarter-point increases Fed officials predicted in December and more than the six moves many top economists predicted this week. The Fed forecast another four hikes in 2023.
The central bank also sharply boosted its inflation forecast, largely as a result of Russia’s attack on Ukraine, while lowering its estimate of economic growth, highlighting the quandary the Fed faces as it tries to tame price increases without tipping the economy into recession.